Cleveland Mining Improves Operating Margins At Premier Gold Mine

Jul. 29, 2013 3:11 AM ET

Cleveland Mining Company (ASX: CDG) has resumed production from its Premier Gold Mine in Brazil after implementing a comprehensive cost-cutting plan that will significantly improve future operating margins.

Importantly, C1 cash costs of US$400 per ounce should be achievable once mining of higher grade material commences at Premier and O Capitão.

This is modelled on the basis of 90% gold recovery achieved after the installation of the final circuit and running at about 24,000 tonnes per month.

Cleveland has reduced staff numbers, demobilised the contract crusher and carried out repairs on the ball mill under warranty.

"We are very happy with the progress that has been made reducing overheads after an extended phase of commissioning. The coming months should see more consistent production with more gold produced," managing director David Mendelawitz said.

"We are in Brazil for the low operating costs and I believe that we can now start to demonstrate what is possible at Premier. With gold currently trading around US$1330 per ounce (A$1430), we are anticipating a very positive period for the Premier Gold Project."

He had earlier this month flagged that the company would be cash-flow positive during the next quarter.

Cost reduction

Cleveland has reduced its staff by 50% and has demobilised the contract crusher from site. This will be replaced by a fixed crusher that will cost about the same as two months' rent on the contracted crusher and will be paid from the proceeds of stockpiled ore.

Around 30,000 tonnes of crushed ore, estimated to contain 1,900 ounces of gold, was delivered to the ROM pad in preparation for the recommencement of processing.

The company has also completed repairs and upgrades to the ball mill, allowing gold production to resume on Friday 26 July 2013.

Ramp up of operations have gone well, with average production rates of 36 tonnes per hour achieved, against the nameplate capacity of 40 tonnes per hour. Prior to the modifications to the mill, throughput averaged approximately 27 tonnes per hour.

Cleveland is also re-evaluating and remodelling mine plans to account for changes in the cost structure, the issuance of the CIL permit, and the publication of the O Capitão leases.

This has produced a new 12 month plan for the mine that includes mining of the underground at Premier and O Capitão, plus increased recoveries through the introduction of chemical processing. Longer term plans will be progressively produced.

Preparation for the underground decline development has begun, with the decline being designed to drive in on high-grade ore.

Initial modelling favours introduction of floatation cells and an Intensive Leach Reactor (ILR) over the Carbon in Leach (NASDAQ:CIL) plant as these can be introduced into the circuit quickly with lower capex and opex than a CIL plant.

Analysis

Cleveland Mining's estimated cash costs of US$400 per ounce are a significant positive for its Premier Gold Project, especially when coupled with expected recoveries of 90%.

This yields a strong margin for Cleveland even if a gold price of US$1,200 per ounce is used. That it can produce with a healthy margin at a gold price of $1,300 per ounce is equally significant.

With the company expected to be cash flow positive in the next quarter, Proactive Investors believes that investors still have a window of opportunity at the current share price of $0.095 before the rest of the market wakes up to its potential.

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